When a borrower defaults on mortgage payments, mortgage foreclosure is the legal process by which the mortgaged property is sold to satisfy the debt. There are a host of notices and other requirements that must be satisfied prior to a judgment of foreclosure being entered and the sale of the real property taken. Noncompliance and lack of diligence can ruin or needlessly delay a foreclosure action. PALUMBO LAW provides a wide range of foreclosure services for lenders and mortgagees throughout Rhode Island, Massachusetts, and Connecticut.
The basics of the mortgage foreclosure process in Rhode Island, Massachusetts, and Connecticut
The mortgage foreclosure process allows a lender or mortgagee to recover the amount owed on a defaulted loan by selling, taking ownership of, or repossessing the property securing the loan. Each state has its own statutes and procedural rules governing the process. Generally, the process begins when a borrower or mortgagor defaults on the mortgage or loan payments.
For judicial foreclosures, the next step following a borrower’s default is for an attorney to file a lawsuit on behalf of the lender or mortgagee to obtain a court order to foreclose. After the court declares a foreclosure, the property will be auctioned or sold to the highest bidder. Some lenders may seek a deficiency judgment. In some cases, the borrower may have a certain time period in which to redeem the property.
If the mortgage contains a power of sale, a mortgage foreclosure may be obtained without having to go to court. With a power of sale clause, the borrower authorizes the sale of the property to pay off the balance on the loan in the event of the borrower’s default. The obvious benefit to a nonjudicial foreclosure is that the mortgage company does not have to file a lawsuit, present evidence to a judge, or get a court order to sell the property. This means that the nonjudicial foreclosure process is typically must faster and less expensive for the lender.
Most jurisdictions have regulations for these types of nonjudicial mortgage foreclosures.
Massachusetts, for example, is a nonjudicial foreclosure state, meaning that a mortgage holder does not need to obtain judicial authorization to foreclose on mortgaged property. In Rhode Island, lenders may foreclose on mortgages in default by:
- Using the judicial foreclosure process
- Filing a lawsuit seeking eviction
- Taking possession of the house
- The borrower’s voluntary relinquishing of possession
- Using the nonjudicial foreclosure process (there is no right to redeem the home after a nonjudicial foreclosure)
Connecticut law recognizes two types of foreclosures—foreclosures by sale and strict foreclosures—both of which require court approval. Strict foreclosures are typically used when a homeowner does not have any equity in the property being foreclosed and do not involve a judicial sale of the property. Instead, each party that holds an interest in the property being foreclosed is assigned “Law Days”, in reverse order of priority, meaning that the last creditor gets the first shot at redeeming the property. This process gives each interested party the opportunity on a specific day to come forward and pay the entire debt otherwise the party’s interest in the property will be forfeited. Connecticut is one of the few states that allow strict foreclosures.
Lenders should not ignore the interplay between the mortgage foreclosure process and bankruptcy proceedings. If a debtor files for bankruptcy, an automatic stay goes into effect. This means that creditors cannot attempt to collect payment of the money owed from the debtor. Thus, if a borrower facing mortgage foreclosure proceedings files for bankruptcy, upon the entry of an automatic stay, the lender or mortgagee cannot proceed with the mortgage foreclosure action.
Types of default that can lead to mortgage foreclosure
The most common type of default upon which a mortgage foreclosure action will be based involves the borrower’s failure to make a monetary payment. However, a mortgage foreclosure action can arise from other nonmonetary breaches of the terms of the agreement or note. To illustrate, if the borrower misrepresents to the lender about the use or occupancy of the property that is the subject of the mortgage, the lender can bring a mortgage foreclosure action. Another example of default is when the borrower fails to pay the required real estate taxes resulting in a tax lien being placed on the real property.
Notice requirements prior to commencing foreclosure proceedings
When a borrower defaults on the terms of the loan, the lender or mortgagee is usually permitted to accelerate the balance of the loan. However, most states require that notice be given to the borrower or mortgagor that the loan is in default. The loan documents may set forth additional notice requirements. Proper written notice of the default, in compliance with the terms of loan documents and the applicable law of the jurisdiction, is a prerequisite to mortgage foreclosure proceedings.
Choose PALUMBO LAW
PALUMBO LAW is experienced and well-versed in all aspects of the residential and commercial mortgage foreclosure process. Our dedicated team of foreclosure attorneys in Rhode Island, Massachusetts, and Connecticut will aggressively work to maximize recovery for lenders. Contact us today to discuss your foreclosure case.